SYDNEY, Nov 19 (Reuters) - Senior staff of Commonwealth Bank of Australia, the country’s biggest lender, felt disappointment and embarrassment when a regulator blamed its culture of complacency for letting money laundering flourish, its CEO told an inquiry on Monday.

Matt Comyn said that when the Australian Prudential Regulatory Authority accused the bank of having a “widespread sense of complacency” and being overly reactive in dealing with risk, he wrote to the bank’s top 500 staff asking for their views.

Staff wrote back expressing “disappointment, embarrassment, very much an acceptance of some of the key issues that were there, in terms of our inability to escalate (or) resolve conflict”, Comyn said.

Staff also complained about “too much of a focus on things like collaboration, which had unfortunately become, I believe, a real weakness inside the organisation”, Comyn added.

Comyn, 42, is the first bank CEO to face questions at the Royal Commission inquiry which has heard allegations this year of industry-wide wrongdoing including fee-gouging, forgery and board-level deception of a regulator.

Comyn was the bank’s head of retail operations before being promoted to CEO in April, two months after the Royal Commission hearings began.

In May, regulator APRA forced CBA to keep an extra A$1 billion ($732 million) in cash reserves after it admitted to more than 50,000 breaches of anti-money laundering protocols. The money laundering matter has not been raised at the Royal Commission, which has focused on bank-customer relations.

At Monday’s hearing, barrister assisting the commission Rowena Orr read out a response to Comyn from the bank’s head of compliance which said staff felt “vindicated and relieved in relation to comments concerning risk management and culture, which reflected what the team was feeling and saying for some time now”.

“These are troubling observations from the head of compliance within a retail bank. Do you agree with that, Mr Comyn?” Orr added.

“Yes I do,” said Comyn.

The CEOs of Australia’s four biggest lenders, plus wealth manager AMP Ltd and investment bank Macquarie Group Ltd , are scheduled to testify in the last round of Royal Commission hearings over the next two weeks.

The retired judge overseeing the inquiry, Kenneth Hayne, will deliver a report to the government by February, in which he is widely expected to recommend a regulatory overhaul of the sector.